UPS Group Case Analysis- Group 2.pdf

Running Head: UPS CASE ANALYSIS

The University of the West Indies, Mona Mona School of Business and Management Master in Business Management- Cohort 6

This assignment is presented in partial fulfillment of the requirements needed for Business Policy & Strategy - SBCO6200

Presented by: 620086240 607005445 620018232 620053114 620031463 Facilitator: Dr. Tolu Bewaji Date Presented: 22nd June 2016

UPS CASE ANALYSIS 1

Contents Executive Summary .................................................................................................................................. 3 Mission and Vision ................................................................................................................................... 4 United Parcel Service (UPS) Existing Vision Statement ...................................................................... 4 United Parcel Service (UPS) Existing Mission Statement .................................................................... 4 United Parcel Service (UPS) Objectives ............................................................................................... 4 United Parcel Service (UPS) Strategies ................................................................................................ 5 Improved Vision Statement for UPS .................................................................................................... 6 Improved Mission Statements for UPS................................................................................................. 6 Internal Assessment .................................................................................................................................. 8 UPS’s Present Organizational Chart ..................................................................................................... 8 UPS’s Improved Organizational Chart ................................................................................................. 8 Marketing Strategy of UPS versus Competitors ................................................................................... 9 Map Locating UPS Operations and Market Positon ........................................................................... 10 Value Chain Analysis Chart................................................................................................................ 14 Value Chain Analysis of United Parcel Service ................................................................................. 14 UPS’s Website and Facebook Page .................................................................................................... 16 UPS’s Internal Strengths and Weaknesses.......................................................................................... 16 UPS Internal Factor Evaluation (IFE) Matrix ..................................................................................... 19 External Assessment ............................................................................................................................... 24 Major Competitors .............................................................................................................................. 24 Competitive Profile Matrix (CPM) ..................................................................................................... 27 Key Industry Trends ........................................................................................................................... 28 Key External Trends ........................................................................................................................... 28 UPS’s External Opportunities and Threats ......................................................................................... 30 Opportunities....................................................................................................................................... 31 UPS External Factor Evaluation (EFE) Matrix................................................................................... 34 Strategy Formulation .............................................................................................................................. 40 Strategic Position and action Evaluation (SPACE) Matrix................................................................. 40 Boston Consulting Group (BCG) Matrix ............................................................................................ 42 Internal to External Matrix (IE) for United Parcel Service (UPS) ...................................................... 44 Strategy Implementation ......................................................................................................................... 45 Financial Ratios .................................................................................................................................. 45

UPS CASE ANALYSIS 2 Recommended Specific Annual Objectives and Policies ................................................................... 53 Recommendation of Specific Strategies and Long-term Objectives .................................................. 61 Estimated Cost of Implementing the Strategies .................................................................................. 66 References ............................................................................................................................................... 72 Appendices.............................................................................................................................................. 74

UPS CASE ANALYSIS 3

Executive Summary This report was created to analyze and summarize the Mission and Vision, Internal Environment, External Environment, Strategy Formulation, Strategy Implementation, and Strategy Evaluation of The United Parcel Service (UPS). UPS’s threats, weaknesses, opportunities, and strengths were measured against acknowledged business processes and strategies. UPS started business in 1907 as a messenger company in the United States. It grew into a multi-billion-dollar, global corporation. Their goal is to enable global commerce. They have grown into their role by specializing in transportation to support logistics services. One of the most recognized and trusted brands worldwide; UPS is the world’s leader in parcel delivery (About UPS, 2012).

UPS CASE ANALYSIS 4

Mission and Vision United Parcel Service (UPS) Existing Vision Statement “Our goal is to synchronize the world of commerce by developing business solutions that create value and competitive advantages for customers.”

United Parcel Service (UPS) Existing Mission Statement

Mission: We seek to Achieve  Grow our global business by serving the logistics needs of customers, offering excellence and value in all that we do.  Maintain a financially strong company with broad employee ownership that provides a long term competitive return to our shareowners.  Inspire our people and business partners to do their best, offering opportunities for personal development and success.  Lead by example as a responsible, caring and sustainable company making a difference in the communities we serve.

United Parcel Service (UPS) Objectives As the world’s largest package delivery company and a leading global provider of specialized transportation and logistics services, UPS continues to develop the frontiers of logistics, supply chain management and e-Commerce combining the flows of goods, information and funds.

UPS CASE ANALYSIS 5

United Parcel Service (UPS) Strategies Customers leverage our broad array of logistics capabilities; global presence in North America, Europe, Asia and Latin America; reliability; industry-leading technologies; and solutions expertise for competitive advantage in markets where they choose to compete. We prudently invest to expand our integrated global network and our service portfolio. Technology investments create user-friendly shipping, e-commerce, logistics management and visibility tools for our customers, while supporting UPS’s ongoing efforts to increase operational efficiencies. The UPS vision is guided by three strategies: 1. To create value for customers using our superior portfolio of logistics capabilities  Demonstrate how the power of logistics can create a competitive advantage for customers.  Offer products and services that expand our customers’ access to global markets.  Configure the board portfolio of solutions for targeted industries.  Offer industry leading technology that simplifies and improves our customers’ business processes.

2. Continually transform to strengthen leadership position  To deliver an exceptional customer experience.  Apply marketing and sales excellence to drive profitable growth.  Enhance performance through quality, efficiency and technology.

UPS CASE ANALYSIS 6

3. Invest to accelerate growth in key markets and new opportunities.  Accelerate growth by leveraging our global network and scale.  Build our infrastructure and presence in key emerging markets.  Expand our offerings of integrated logistics solutions

Improved Vision Statement for UPS We will globalize the world of logics and providing Customers Services by creating values and transform them through investments

Improved Mission Statements for UPS A mission statement proposed to UPS is: What we seek to achieve:

 We offering precious and excellent customer services, logistics, distribution and commerce need worldwide in all manners.  We are ethical, well regarded and responsible employer by providing our people rewarding, appreciation and cooperative environment with the opportunity for advancement  We serve as environmental friendly by caring our society and responsible corporate citizen  We make our business globalize by servicing prior logistics to the customers and offering them a valuable services.

UPS CASE ANALYSIS 7

 Maintain as a financially strong company through our stakeholders that serves a long term commitment.

This improved vision statement focused more on UPS goal in dominating the logistics industry in becoming the market leader and cater their services more to individuals customers while the original vision statement were more focused on catering to other businesses and firms to gain a competitive advantage.

The improved mission statement declares the company’s overall service and commitment to customers like the original mission statement but also stating that they are highly ethical which indicates to customers that UPS is a trustworthy and safe company to conduct business with them. Also this improved mission also mentions their responsibilities to stakeholders and to the environment.

UPS CASE ANALYSIS 8

Internal Assessment UPS’s Present Organizational Chart Among UPS’s top eight corporate executives, there are two women and one African American. Figure 3 reveals UPS’s current organizational chart. Note the company uses a divisional by geographic region structure.

Figure 3: UPS’s Organizational Structure

UPS’s Improved Organizational Chart The improved chart shows the three hierarchical levels; directors, management and senior operations management. This structure clearly highlights the ranking and categories of UPS management operations. However, the previous structure omitted senior vice president, global transportation and senior vice-president, sales, marketing and strategy officer. There is a

UPS CASE ANALYSIS 9

financial director and a senior vice-president chief financial officer which was also omitted from the original organization chart.

UPS Chairman and Chief Executive Officer

Senior Vicepresident, Chief Information Officer

Financial Director

Senior Vicepresident and Chief Financial Officer

Senior Vicepresident, Global Transportation

President UPS International

Chief Operations Officer

Senior Vicepresident, Legal Compliance Officer

Senior Vicepresident, Human Resource and Labour Relations

Senior Vicepresident, Communication s and Brand Management

President UPS Operations

Marketing Strategy of UPS versus Competitors UPS To promote the company and its product, UPS uses advertisements, print advertisements and the concept of e-marketing. These promotion and communication strategy tend to meet the

Senior Vicepresident, Sales, Marketing and Strategy Officer

UPS CASE ANALYSIS 10

consumers from different places everywhere, especially those target markets or the consumers in the working place. Moreover, since the trend in the market place today is the usage of emarketing, the company provided a website that any client can access. The use of the Internet is changing high-tech marketing overnight while different industries have been trying to use it as part of their marketing strategy.

Fed Ex  To be the fastest service provider company in the courier delivery companies.  To maintain the logistics and operations of the company smooth and workable to earn big profits.  To use technological improvements in enhancing the system for clients to track their orders at any time and place.  Making the services smooth and comfortable for clients that they pay higher prices happily for such fine courier services.  To differentiate the standards of quality from their competitor companies to raise the level of services for the comfort of its clients.  By providing superior services, a strong customer base should be maintained for the company which keeps on increasing day by day.

Map Locating UPS Operations and Market Positon

United Parcel Service, branded as UPS, is one of the largest shipment and logistics companies in the world, offering a broad range of solutions including transporting packages and freight;


facilitating international trade, and deploying advanced technology. Headquartered in Atlanta, Georgia, UPS serves more than 220 countries and territories worldwide. With over 390,000 employees worldwide, UPS delivers 16.9 million packages and documents to 9.4 million customers daily.

UPS Supply Chain Solutions has assembled comprehensive portfolio of transportation services, which, as stand-alone or bundled together, create innovative supply chain solutions for multiple industries. With UPS Supply Chain Solutions, you get a single-source solution to more efficiently manage transportation for your business. We're uniquely positioned to leverage our infrastructure, systems and global network to synchronize your supply chain from end to end regionally, nationally and globally.

Furthermore, UPS is investing massively in transport technology research. Innovations such as alternative fuels and electric vehicles are among being tested, reduction in fuel consumption being the main concern. Engineers and geographers study optimal roads and driving speeds to enhance efficiency and reduce costs. In that regard, UPS is also working on computer software to simplify shipping red tape, optimize routing strategies and facilitate package tracking. The system also enables customers to locate and track their parcel directly from the Internet. UPS is a textbook example of intensive research in transport geography. Optimal routing systems are essential to assure efficient delivery in only 24 hours throughout the world. Rigorous planning can also save considerable amounts in transport costs such as fuel, wages, vehicle


maintenance, etc. Strategies such as the consolidation principle and the hub network strategy are very important and useful in transport geography analysis.

Consolidation: The first step obviously involves the collection of parcels by trucks assigned to specific routes. To optimize the driver's effectiveness, traffic trends and road conditions are continuously monitored to insure that the optimal path is taken. From his/her truck, the driver has access to an hand-held computer device (DIAD) that enables to capture information about each packages and delivery. This is essential to track a parcel or be alerted in any road change or unplanned situation. The parcels are then assembled at the closest distribution center. Distribution: The distribution function works on a hub to hub basis, depending on the distance involved, the mode used between hubs will either be trucking or air. Commonly, trucks are used for distances less than 400 miles (600 km). The main air hub is Louisville, Kentucky, which handles over 100 flights a day. In 2002, a distribution center of 5.2 million square foot, called UPS Worldport, opened at the Louisville International Airport. This facility handles about 1.6 million packages each day. The main land hub is the Chicago Area Consolidation Hub, which is the largest distribution center in the United States. Fragmentation: This step is the inverse of consolidation as parcels have to be delivered to each individual destination. Commonly, fragmentation is combined with consolidation as a delivery truck route can be integrated with a pickup route. This can be achieved only with a high level of control on the logistical chain. In instances where there is not enough density to justify a commitment of distribution assets, UPS will deliver to the local post office, which will cover the last mile.


Map locating UPS Operations (Service Grounds): Geographical Distribution UPS reaches across the globe. 79% of their revenues come from the Americas, with 9% and 10% from Asia and Europe, respectively.

Figure 7: Map Locating UPS Operations


Value Chain Analysis Chart

Figure 8: UPS Value Chain Chart

Value Chain Analysis of United Parcel Service

Support Activities: Administration and management: Package Level Details (PLD), an automated operational system; able to do data mining in the warehouse which lead to the creation of accurate cost calculations for the accounting function, allow the accountants to use activity-based costing (ABC) to identify the profitability for segments of thousands of delivery routes.


Human Resources: The PLD system also helps the UPS human resource department to calculate it cost of labour for every shipping segment. Technology: UPS developed a GPS-based aircraft navigation system to guide planes into an airport. This system saves UPS several minutes and 50-100 gallons of fuel per flight.

Procurement: UPS purchased airplanes to deliver their shipment.

Primary Activities: Inbound Logistics: The UPS’s order entry system was able to wring out inefficiencies by having shipping customers enter package information directly into the system by themselves in advance of pick-ups.

Operations: Geographical information system (GIS), provides UPS with the IT competency of optimizing workflow by automatically assigns resources to pick up, sort, and deliver the packages once the customers enter PLD data into UPS’s order entry system.

Outbound Logistics: UPS’s systems able to process the customer-entered information by the supplier and scheduled direct delivery to the producer. Delivery Information Acquisition Device (DIAD), able to generates an electronic manifest to help the UPS truck driver to deliver the shipment by using the most efficient route.


Marketing and Sales: Enterprise Resource Planning (ERP) system can be extended to link with business partners’ system to create the business opportunity of shorter time-to market.

Customer Services: USPS, UPS transaction processing systems provides a seamless package tracking capability to its customers.

UPS’s Website and Facebook Page Overall consumer satisfaction with UPS website and facebook page is high. However online shoppers are satisfied with the ability to customise their experience post purchase. Specifically, their ability to choose a delivery day, re-route a package after it has been shipped, and the ability to specify a time of day for delivery. Also they are satisfied with their ability to contact a live customer service representative and the ability to purchase through a smartphone or tablet application. UPS also uses social media to access consumers. Facebook ranks as the most popular by a considerable margin, followed by Twitter, Google+, and LinkedIn. The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organizations objectives.

UPS’s Internal Strengths and Weaknesses Strengths: 1. High entry barriers


2. UPS’ competitive advantage lies in its use of integrated assets to transport U.S. urgent and ground shipments through the same network. 3. Clients appreciate the convenience of using the same driver to handle both express and ground packages. By doing this, UPS’ yield on express packages is 20% more than Fed Ex. 4. Strong market position: UPS is the largest package delivery company in the world. 5. Broad portfolio of Service: 6. Loyal Customers 7. Strong Revenue Growth 8. Effective Communication 9. Empowerment of Employees 10. Strong distribution Network 11. Strong Financial Performance 12. Premium Service (next-day delivery) 13. Large Customer Base 14. Strong Market Position 15. Broad portfolio of Service 16. Strong Financial Performance 17. Global Brand 18. Customer Relationship 19. Advanced Supply Chain Activities 20. Environment Friendly


Weaknesses: 1. Company is still highly reliant on the U.S. market. 2. High energy costs are reducing profits. 3. No Innovation 4. Lack of Diverse Pool 5. Lack of Technology 6. Low Research and Development 7. Heavy Union Presence 8. Perception of Ground Delivery instead of overnight 9. The market share growth is limited as UPS serves a competitive segment. 10. Geographic Focus 11. High Debt 12. High Staff Turnover 13. Increase Prices 14. Business to Business 15. Stock-based Compensation 16. Rise in Fleet Charges 17. Increase in Operating Expenses 18. Reduction in work hours: an outcome of lower mail volumes which reduces workload 19. Unfunded employee post benefit 20. Small Business Units


UPS Internal Factor Evaluation (IFE) Matrix

Key External Factors

Weight Rating Weighted (1-4)

Comment

Score

Strengths Strong Market Position

United Parcel Service, Inc. holds a compellingly strong market position in the global package delivery industry and is a leader in the less- thantruckload trucking industry in the United States. The company's operations reflect its market position. The company delivers packages for around 1.8 million customers to 6.1 million consignees in over 200 countries and territories each business 0.025

4

0.1

Broad Portfolio of Service

day. The company is well diversified in terms of the end markets that it serves. It provides a diversified set of offerings through its three business segments. For

0.01 25

3

0.0375

instance, the US domestic


package segment consists of air and ground delivery of small packages up to 150 pounds in weight and letters to and from all 50 states in the US. It also provides guaranteed, timedefinite delivery of certain heavy-weight packages. UPS delivers to more businesses and zip codes in the US, and worldwide from the US, than its competitors. Strong Financial

The company has a long track

Performance

record of steady growth and strong financial performance. The company have maintained the stable rating outlook with the belief that the company is well-positioned to demonstrate improved performance, and financial metrics consistent with its assigned rating as the economic recovery gains 0.05

3

0.15

Global Brand

steam. UPS have built a strong international presence through significant investments over several decades. The international package delivery market continues to grow at a

0.075

3

0.225

faster rate than that of the U.S.


Premium Service (next-day

UPS tradition of reliable

delivery)

package delivery service, our experienced and dedicated employees and our unmatched integrated air and ground network provide us with the advantages of reputation, service quality and economies of scale that differentiate us 0.0 5

4

0.2

Large Customer Base

from our competitors UPS's customer base has grown from 500,000 in 1980 to over 1.46 million daily pickup

0.0 25

4

0.1

customers in 1996 (Hair, 2014) UPS Supply Chain Solutions is

Advance Supply Chain

uniquely positioned to develop

Activities

end-to-end supply chain management. Their comprehensive service portfolio and advanced IT systems combined with their network of worldwide distribution facilities make them the global provider to turn to when you want a single, trusted source for your supply 0.05

4

0.2

Robust Infrastructure

chain needs. UPS has a strong transportation infrastructure. It operates a ground fleet of approximately 101,900 vehicles, which

0.075

3

0.225

reaches all business and


residential zip codes in the contiguous US. It also operates an air fleet of 510 aircraft, and is one of the largest airlines in the world. Environment Friendly

Reduce paper use and increase billing efficiency with electronic, or paperless, billing 0.025

3

0.075

from UPS.

0.145

2

0.29

UPS has operations in Africa,

Weaknesses Geographic Focus

Asia, America, Europe, and Middle East. Overdependence on one geographic region makes it susceptible to changes associated with the economic and political situation of the country. The company's high reliance on the US market exposes it to the risk of downturns in the country's macroeconomic conditions and increases its business risk. Competitive Segment

0.15

2

0.3

UPS has focused on the US market even if it has operations in other countries situated in Asia, Africa, America, Europe, and the Middle East. The company's competitors such as TNT, have diversified their operations in various Asian and European countries


Reliance on U.S Market

0.075

1

0.075

Company is still highly reliant on the U.S. market.

High Staff Turnover

0.025

1

0.025

Over the last ten years we have seen a dramatic increase in the utilization of part-time workers by the United Parcel Service (UPS). This increase has been coupled with a stunningly high turnover rate of 150 percent among these workers (Bronfenbrenner,2000)

Increase Prices

0.05

1

0.05

There has been an increase in service fee due to a rise in oil and operational expenses.

Business to Business

0.055

2

0.11

UPS specializes in the delivery of parcels to consumers on behalf of online businesses.

Total Weighted Score

1

2.163


External Assessment Major Competitors Companies in this industry provide express delivery and pickup of parcels. Major companies include US-based United Parcel Service (UPS) and Federal Express (FedEx), as well as Aramex (United Arab Emirates), DHL (Germany), and Yamato (Japan), with two key players, FedEx (FDX) and United Parcel Services (UPS); as shown in figure 1 and 2. UPS is the U.S. leader in their sub-industry. Their competition consists of mainly FedEx and a few smaller companies.

Figure 1: Market Share of Major Courier and Delivery Services 2015


Figure 2: Market Share of Courier Service Providers (2015) The profitability of individual companies depends on price, reliability, quality, and services. Large companies compete by offering a wide range of services. Small companies compete through specialized customer service. The industry is divided into two segments: large networked couriers capable of nationwide and international delivery, and smaller local services that transport packages within a metropolitan area. Table 1 below highlights UPS and its competitors quarterly profitability for 2015.

Table 1: UPS vs Competitor Profitability for 2015

United Parcel Service (UPS) United Parcel Service is one of the leading local and global package delivery companies, with its headquarters in Sandy Springs, Georgia. Founded in 1907, the company prides itself on delivering over 15 million packages a day to 6.1 million customers in more than 220 countries around the world. Its courier express service is one of the best in the world and has the lion’s


share of the US domestic market as a whole. The company has about 4,756 stores, 1,000 customer service centers, 13,000 authorized outlets, and 40,000 drop boxes.

FedEx Headquartered in Memphis, Tennessee, FedEx is a global courier delivery services company that was founded in 1971. It is also one of the top courier services in the world. The company has a market cap of about $49.9 billion and offers ground and air delivery services, overnight deliveries, time-guaranteed international delivery, and freight services, to name a few. The company holds about 49% of the total express shipping market in the US. The company has about 1,900 office locations in the US.

DHL Headquartered in Germany and privately held, DHL is a gigantic package delivery company that constitutes the express delivery and logistics business segments of its parent, Deutsche Post. DHL is a leader in the worldwide market for express delivery services, operating through four divisions: Express, Global Forwarding and Freight Forwarding, Mail, and Supply Chain. (Mail service in Germany is handled by the Deutsche Post brand; DHL handles all of the Global Mail business). DHL’s Express courier service network spans more than 220 countries and territories using a fleet of 32,000 vehicles and about 250 aircraft.


Competitive Profile Matrix (CPM) The Competitive Profile Matrix (CPM) illustrated above indicates that the United Parcel Service (UPS) is poised to succeed and dominate the market over their closest rivals Federal Express (FedEx) and the United States Postal Service (USPS).

Critical Success Factors Advertising Global Presence Organization Structure Customer Service Global Expansion Financial Position Employee Dedication Management Experience Customer Loyalty Market Share Product Quality E Commerce Price Competitiveness

Weight 0.05 0.05 0.08 0.10 0.05 0.10 0.07 0.10 0.10 0.10 0.05 0.07 0.08

United Parcel Service Rating Score 4 3 4 4 4 4 4 4 4 4 3 2 4

0.20 0.15 0.32 0.40 0.20 0.40 0.28 0.40 0.40 0.40 0.15 0.14 0.32

Federal Express Rating Score 3 3 1 3 .30 3 3 3 3 3 2 3 3 2

United States Postal Service Rating Score 0.15 0.15 0.08 0 0.15 0.30 0.21 0.30 0.30 0.30 0.15 0.21 0.16

2 0.10 1 0.05 1 0.08 1 0.10 3 0.15 0 0.00 3 0.21 3 0.30 2 0.20 4 0.40 2 0.10 2 0.14 2 0.16


Key Industry Trends The Couriers and Local Delivery Services industry is an integral part of the US economy, providing transportation for goods, materials and documents for individuals, businesses, institutions and government agencies. Couriers pick up documents and packages needing to be sent or received quickly and deliver them to their final destinations, usually within a local area.

In 1997, the four carriers that account for well over 90% of U.S. parcel activity —Airborne, FedEx, UPS, and the U. S. Postal Service-- had $37.9 billion in transportation revenue. This exceeded the domestic transportation revenue of all major freight modes except trucking (Morlok, etal, 2000). In the BTS’1977 Commodity Flow Survey, only 3.2% of the value of goods shipped went via parcel carriers. But by the latest survey, in 1997, that percentage had grown to 12.3%. There are fundamentally two reasons why parcel service has become so important in recent years. One consists of changes in the way goods and services are produced and distributed in our economy—globalization, customized mass production, lean inventory management, rapid customer response, and growth in e-commerce, among others. The other is parcel service itself, which is at the vanguard of transportation service modernization with such features as differentiated time-definite service options, intermodal service, in-transit visibility, and data integration with the management systems of customers. Thus parcel service is a major element of the transportation infrastructure of the nation. It is essential for modern commerce. Current trends suggest that parcel service will assume an even more significant role in the future.

Key External Trends Economic


Our UPS operations in international markets are affected by currency exchange and inflation risks. Gasoline prices, along with rising energy prices are the major concern. Jet fuel prices are at $2.80/gallon. However, many people would rather have items shipped rather than spend money on gas to go and buy the item. The industrial industry tends to be sensitive to economic cycles.

Legal International express services can be delayed by government policies and restrictions that can include anticompetitive practices of government-owned or authorized monopolies, licensing requirements, customs procedures, restrictions on access to aviation markets, restrictions on access to ground transportation systems, and restrictions on foreign investment. Market Demographics: The target market is everyone in the world who needs to ship an item. Christmas time is a particularly busy time for shipping items across the world, whereas people need a company like UPS to do the delivering for them.

Social UPS supports communities all over the world by supplying jobs to well over 400,000 people with 68,000 of those jobs being outside the United States. UPS employees and retirees donated $53.2 million US to the United Way in 2009 and also donated 1.2 million hours of their and their family’s personal time to volunteer work in their communities (UPS. 2009)


Attracting and retaining customers, increasing market share in diverse communities, building strong one-on-one relationships with key stakeholders in diverse communities, building and maintaining a strong supplier diversity effort and allocating resources to diversity and inclusion. Culture UPS Employee Diversity & Inclusion Strategy represents their commitment to creating an environment where all employees feel valued, respected and fully engaged to contribute to their future success. In support of that strategy, UPS’s definition of diversity extends beyond race, age and gender to also include differences in ethnicity, sexual orientation, gender identity, education, religion, physical ability, values, backgrounds and experiences. Additionally, the company’s brown-clothed drivers and employees and brown trucks symbolize the firm’s commitment to a distinctive culture, anchored by employee ownership of a large part of the firm. UPS is highly unionized.

Technology UPS innovative technology business services help streamline shipping, visibility, and billing processes to create value that goes beyond on-time delivery. Using shipping software, professional services customers have been able to improve shipping cost recovery as well as shipment preparation time.

UPS’s External Opportunities and Threats The key external opportunities and threats that are important to achieving the objectives of UPS are identified below. United Parcel Service (UPS) is the world's largest package delivery


company. Yet it's not invincible. The question before us today is: Can UPS overcome its weaknesses and emerge as the investor's company of choice? As such its internal strengths and weaknesses are identified below. Opportunities 1. The ratification of a new five-year contract with its Teamsters employees, including a plan to withdraw from a large underfunded multiemployer pension, and a change in policy toward debt. 2. Looking East: Emerging Asian nations, such as India and China, still have a considerably low penetration of package delivery services, making them the perfect regions for potential acquisitions by the company. 3. Online Shopping: The recent boom in online shopping also means that an increasing number of people will require shipping services, which should translate into a potent source of revenue for companies like UPS. Online shopping giants Amazon and eBay regularly use its services to reach out to their customers. 4. Geographical Expansion 5. Online Distribution 6. Change in Consumer Behaviour 7. Alternative Facility 8. Global Expansion 9. Emerging Market Growth 10. Logistic Outsourcing 11. Retail E-commerce Growth 12. Technological Advancements 13. Integrated Global Network


14. Government Control offers the ability to get extra funding as needed 15. Aging Population 16. The postal service updates its 5-year strategic plan annually to accommodate ongoing business environment changes. 17. On average, the competitors are more expansive in services they offer compared to UPS. 18. Increasing need for segment expertise in the integrated carrier space 19. Deregulation in the trucking industry 20. Emergence of International Middle Class

Threats 1. Globalization: Exchange and inflation risks 2. Competition for market share is highly intensive 3. Technology Increase 4. Internet Use Increase: Less demand for document delivery 5. Fluctuating energy prices: changing energy prices will greatly affect UPS’s service and bottom line 6. Growth of Fed Ex, DHL, TNT or other major competitors.

7. Spiralling Fuel Costs: UPS has to contend with rising fuel costs that hurt margins and pinch profitability. In 2011 the company's revenue grew by 7%, while fuel expenses surged by a staggering 36%.


8. China Challenge: Although China is a highly lucrative area of expansion for most organizations, including UPS, the recent slowdown in China's economy continues to be a source of concern. UPS' actual performance may not live up to its expectations in that region, but this story has yet to play out. 9. Compliance with Government 10. Compliance with international market laws and regulations 11. Strikes and Work Stoppage 12. Intense Competition 13. Change in Consumer Behaviour 14. Premium Charges for Delivering Goods 15. High Cost of Trade 16. Distribution Network 17. Shifting to Subsidies (from air to sea) 18. Privacy Breach or IT system 19. Weak economy has impacted UPS and consumer due to downsizing and cutbacks 20. Increase in Contract Labour Rates


UPS External Factor Evaluation (EFE) Matrix

Key External Factors

Weight Rating Weighted (1-4)

Comment

Score

Opportunities UPS Worldwide Expedited offers to our customers a more cost-effective, prompt service with the same benefits that they get, using UPS Worldwide. According to UPS, unstable economic situation of recent years makes it even more obvious the reasons by which companies should look for ways to ensure the stability and growth opportunities in Geographic Expansion

0.09

3

0.27

global markets. More shoppers are buying online because sometimes it's simply easier. Schedules are packed and stores can be crowded, so shopping from a computer or smartphone

Online Shopping

0.05

3

0.15

skips those challenges. To create more sustainable consumption, UPS must

Change in Consumer Behaviour

reshape demand by making it 0.04

4

0.16

more personal and relevant to


consumers and leveraging the power of technology to drive engagement and transparency. Comprehensive distribution services to be provided through a global network of distribution centers that manage the flow of goods Alternative Facility (Providing sea logistics at discount price)

from receiving to storage and 0.035

3

0.105

order processing to shipment. Expand Internationally, Improve Competitiveness Demand for courier services

Global Expansion

is growing, and the call is primarily coming from 0.04

4

0.16

abroad. I t is estimated by the year 2050, there will be more than nine billion people on the planet. And approximately one billion people from the developing world are

Emerging Market Growth

entering the market for goods 0.07

2

0.14

and services. (UPS, 2016) There is a clear trend for outsourcing with both packaging and courier services. Outsourcing can help provide a competitive

Logistic Outsourcing

advantage in supply chain 0.055

2

0.11

management by providing


greater agility and flexibility that can help position the company to stay ahead of trends affecting the industry. The advent of technology has changed the way courier services work. The ecommerce market is expected to reach more than $1.5 trillion by the end of 2016 (Schmidt, 2015). This will create huge opportunities for Retail E-commerce Growth

parcel delivery service 0.08

3

0.24

providers like UPS. The advent of technology has changed the way courier services work. Newer technologies and the increased reach of the Internet has led to greater transparency and advanced

Technological Advancements

methodologies of tracking 0.04

4

0.16

using online systems.

0.10

3

0.30

The U.S. Department of

Threats Compliance with Government Regulations

Transportation (“DOT”), the Federal Aviation Administration (“FAA”), and the U.S. Department of Homeland Security, through the Transportation Security Administration (“TSA”),


have regulatory authority over United Parcel Service Co.’s (“UPS Airlines’”) air transportation services. Intense Competition

0.2

4

0.8

The impact of competition on a local, regional, national, and international basis. UPS competitors include the postal services of the U.S. and other nations, various motor carriers, express companies, freight forwarders, air couriers and others. The industry is characterized by high shipping volumes, low weights, and timely delivery of shipments.

Premium Charges in

0.025

2

0.05

Delivering Goods

The company has recently revised the pricing structure of its ground delivery business, and it's announced that it would now consider the size of the parcel, and to just weight, when charging customers.

High Cost of Trade

0.025

2

0.05

The US has witnessed the emergence of a number of regional carriers such as OnTrac and Eastern Connection, which are providing cheaper, faster


delivery options to Western and Northeast US states. Distribution Network

0.025

2

0.05

Major U.S. retailers are experimenting with new ecommerce strategies that could dent demand for package delivery services, particularly demand for shipments over long distances, according to analysts and industry executives.

Amazon.com Inc is building its distribution warehouses closer to customers to save millions of dollars in shipping costs. The world's largest online retailer is also increasingly using its own delivery trucks, cutting UPS and FedEx out of some parts of its fulfilment network. Shifting to Subsidiaries (from

0.05

2

0.10

air to sea)

By providing options to ship globally by sea limits the bridge of the gap between the speed of air freight and the economy of ocean freight.

Changing Prices of Energy

0.025

2

0.05

Possible disruption of supplies, or an increase in the prices, of gasoline, diesel and jet fuel for our aircraft and


delivery vehicles as a result of war or other factors. UPS will require significant quantities of fuel and are exposed to the commodity price risk associated with variations in the market price for petroleum products. Therefore high fuel prices increases transportation expenses Privacy Breach or IT System

.05

3

0.15

The threat of malicious software that compromise, exposed customer names, postal and email addresses and payment card information. How many people were affected was not disclosed.

Total Weighted Score

1

3.095


Strategy Formulation Strategic Position and action Evaluation (SPACE) Matrix

UPS CASE ANALYSIS 41 Internal Analysis

External Analysis

Financial Strength

Industry Attractiveness

Return on Assets

6

Growth Potential

6

Return on Sales

5

Life Cycle Stage

4

Cash Flow

4

Gearing

1

Entry Barriers Customer Power

5 4

Substitutes

6

Financial Strength Average

4

Industry Attractiveness Average

Internal analysis

External Analysis

Competitive Advantage

Environmental Stability

5

Market Share

-1

Political Uncertainty

-2

Quality

-1

Interest Rates

-2

Customer Loyalty

-1

Technology

-1

Cost Levels

-1

Cyclical

-3

Product Range

-1

Environmental Issues

-2

Environmental Stability Average

2

Competitive Advantage Average

-1


Boston Consulting Group (BCG) Matrix

United Postal Service is a leader in the Air Freight and Shipping Logistics industry. Data retrieved on the company’s performance indicate that they have 51% of market share making them the largest company having more market share than their main rivals FedEx and USPS combined. UPS had a net margin of growth of 7.84% and had cash flow earnings of $5,052,000,000.


Using the Boston Consulting Group’s growth share matrix to analyze Ups’s performance the company can be classified as a Star company. The high market share of 51% has allowed UPS to have a large cash flow. However, as seen with most Star companies the high growth rate has resulted in UPS consuming a large amount of cash to manage the market share and growth of the Company. UPS has a strategy of investing for growth which sees them partnering with international companies by investing large sums of money with the intention acquisition in the future. This strategy as enabled UPS to increase market share and has been one of the companies principal strategy since going public in 1999.


Internal to External Matrix (IE) for United Parcel Service (UPS) The Total IFE Weighted Scores Strong 3.0 to 4.0

Average 2.0to 2.99 II

Weak 1.0 to 1.99 III

4.0

I

3.0

IV

V

VI

VII

VIII

IX

High

The EFE

Medium

Weighted Total

Weighted Scores 2.0

Low

1.0

The Internal – External (IE) Matrix was collated by using the data collected in the Internal Factor Evaluation (IFE) Matrix and the External Factor Evaluation (EFE) Matrix. The IFE provided a score of 2.163 plotted on the x axis while the EFE score was 3.095 plotted on the y axis. Using these scores on the IE Matrix placed UPS in the Cells I and II which suggests that the grow and build strategy is the best one for UPS to undertake at this time. For UPS this means the strategy should be intensive and aggressive. The strategies should focus on market penetration, market development, and product development. From the operational perspective, a backward integration, forward integration, and horizontal integration should also be considered.


Strategy Implementation

Financial Ratios Financial Ratios Actual 2015 2016 Gross Profit Margin 77.82% 78.04% Current Ratio 1.23 1.25 Earnings per share 5.49 5.68

Projected 2017 79.35% 1.43 5.75

2018 81.35% 1.57 5.82

Earnings per Share/ Earnings before Interest on Tax (EPS/EBIT) Analysis Break-even EBIT Level Break-even EBIT level is the indifferent point where EPS under alternative financing plan is the same. Mathematically, the break-even EBIT level is:

(EBIT* - I1) (1 – t) --------------------------n1

(EBIT* - I2) (1- t) =

------------------------n2

Where, EBIT* = indifference point between the two alternative financing plans I1, I2 = interest expenses t

= income-tax rate

n1, n2 = number of equity shares outstanding after adopting financing plans 1and 2


Assumptions: 1. Financing the recommendations by issuing equity in the market to raise the number of outstanding equity shares from 882,670,616 to 1,000,000,000 2. financing, a new project by issuing bonds which will carry interest expenses of 1,400,000 and keeping the number of outstanding equity shares the same

(EBIT* - 0) (0.75) ----------------------1,000,000,000

(EBIT* - 1,400,000) (.75) = -----------------------------------882,670,616

tax rate = 35%

EBIT*=1,401,237,000

Since the current EBIT crosses the above indifference level EBIT, the use of fixed-cost source of funds would be beneficial and the financial leverage would be favourable.

EPS

To understand how this capital structure and growth plan will impact EPS, we can solve the following formula and The resulting EPS will tell us if this capital structure is the best way to fund the growth plan and also improve EPS.


1,401,237,000−1,400,000)(.75)

EPS= (

882,670,616

EPS=$1.19

This works out to a projected EPS of $1.19, well below the existing $5.49 per share. This analysis tells the company's management and investors that this plan is far from optimal. While it may increase EBIT, the cost of the new debt and the new shares outstanding are too great to support the company's earnings per share. In order to pursue this growth plan, the company must either change the balance of debt and equity financing, find cheaper sources of funding, or find a new plan that can generate a higher growth rate to support the costs of interest and equity.

Limitation Use of EBIT-EPS analysis can determine which financing alternative maximizes EPS. However, it is possible that maximizing EPS results in such a high risk level that the weighted cost of capital is not minimized, and therefore the value of the firm is not maximized Current and Projected Financial Statements for years 2015 through 2019

Revenue ($ Million)

2015 $64,055

2016 $70,461

2017 $78,916

2018 $88,386

2019 $98,992


Total operating expenses Total operating profit Other income (expense) Income before income taxes Income tax expense Net Income

$55,927 $8,128 $329 $7,799

$58,724 $11,737 $327 $11,410

$61,660 $17,256 $325 $16,931

$64,743 $23,643 $323 $23,320

$67,980 $31,012 $321 $30,691

$2,652 $5,147

$3,879 $7,531

$5,757 $11,175

$7,929 $15,391

$10,435 $20,256

Total Logistics and Freight Services (Global) UPS' Total Revenues (as stated above) UPS' Market Share

$337,02 4 $64,055

$353,87 6 $70,461

$371,56 9 $78,916

$397,57 9 $88,386

$425,41 0 $98,992

19.01%

19.91%

21.24%

22.23%

23.27%


PROJECTED BALANCE SHEET 2015

2016

2017

2018

2019

Cash And Cash Equivalents

2,730,000

3,276,000

3,931,200

4,717,440

5,660,928

Short Term Investments

1,996,000

2,395,200

2,874,240

3,449,088

4,138,906

Net Receivables

7,134,000

8,560,800

10,272,960

12,327,552

14,793,062

Inventory

-

Other Current Assets

1,348,000

1,617,600

1,941,120

2,329,344

2,795,213

Total Current Assets

13,208,000

15,849,600

19,019,520

22,823,424

27,388,109

Long Term Investments

473,000

567,600

681,120

817,344

980,813

Property Plant and Equipment

18,352,000

22,022,400

26,426,880

31,712,256

38,054,707

Goodwill

3,419,000

4,102,800

4,923,360

5,908,032

7,089,638

Intangible Assets

1,549,000

1,858,800

2,230,560

2,676,672

3,212,006

Accumulated Amortization

-

Other Assets

1,055,000

1,266,000

1,519,200

1,823,040

2,187,648

Assets Current Assets


Deferred Long Term Asset Charges

255,000

306,000

367,200

440,640

528,768

Total Assets

38,311,000

45,973,200

55,167,840

66,201,408

79,441,690

Accounts Payable

5,497,000

6,596,400

7,915,680

9,498,816

11,398,579

Short/Current Long Term Debt

3,735,000

4,482,000

5,378,400

6,454,080

7,744,896

Other Current Liabilities

1,464,000

1,756,800

2,108,160

2,529,792

3,035,750

Total Current Liabilities

10,696,000

12,835,200

15,402,240

18,482,688

22,179,226

Long Term Debt

11,316,000

13,579,200

16,295,040

19,554,048

23,464,858

Other Liabilities

13,693,000

16,431,600

19,717,920

23,661,504

28,393,805

Deferred Long Term Liability Charges

115,000

138,000

165,600

198,720

238,464

Minority Interest

21,000

25,200

30,240

36,288

43,546

Negative Goodwill

-

Total Liabilities

35,841,000

43,009,200

51,611,040

61,933,248

74,319,898

Liabilities Current Liabilities

Stockholders' Equity


Misc Stocks Options Warrants Redeemable Preferred Stock Preferred Stock Common Stock

9,000

10,800

12,960

15,552

18,662

Retained Earnings

6,001,000

7,201,200

8,641,440

10,369,728

12,443,674

Treasury Stock

-51,000

-61,200

-73,440

-88,128

-105,754

Other Stockholder Equity

-3,489,000

-4,186,800

-5,024,160

-6,028,992

-7,234,790

Total Stockholder Equity

2,470,000

2,964,000

3,556,800

4,268,160

5,121,792

Net Tangible Assets

-2,498,000

-2,997,600

-3,597,120

-4,316,544

-5,179,853

Capital Surplus

assets & liabilities will increase by 20% up to 2019


Factors Considered in Projections and Analysis:

1. An average increase of 6% in revenue each year for the past 10 years, plus an inflation rate of 4% until 2016.

2. Starting in 2017 the growth rate on revenue will be 7% with an inflation rate of 5%.

3. Other expenses will be reduced by increasing investment income by $2 million each year. 4. The tax rate of 34% remains unchanged.

5. Due to UPS’s growth and expansion, other companies in the industry will most likely exit the market or reduce operations; thus, increasing UPS’s market share.

6. UPS will reach its market share goal of 23% five years later in 2019.


Recommended Specific Annual Objectives and Policies Specific Annual Objectives (3 years) Year 1

Our team of strategist have developed two key business goals for UPS to achieve in the following year:

1. To achieve a unified organization which is working productively and efficiently together and which clearly understands the overall business plan. 2. To effectively introduce the treaties of international trade to facilitate acquisitions and mergers.

To support these business goals, the recommended objectives are:



By the end of the year, all employees and organizations understand and support our strategic goals and programs for the next three years. All plans and strategies will be disseminated in print and audio visual formats.



Build awareness and understanding about the new changes to the rules within international trade and logistic services compliance. This will be done in quarterly workshops.

Year Two

United Parcel Service continues to do well however it is important for them to have clear objectives in order to guide their efforts and resources. Our audit suggests that it will serve UPS well to create objectives in relation to:

UPS CASE ANALYSIS 54 

Efficiency we recommend that they target a 30% increase in efficiency by focusing on a reduction of their operational costs. -

The company can have commercial clients retaining full responsibility for packaging and labelling their shipments this will reduce packaging errors.



We recommend that they improve customer service by providing a by establishing an online customer care interaction platform or application.



Increase the number of daily transactions by deliberately infiltrating and overtaking competitor’s market shares. Establish branches in areas where DHL was doing domestic shipping as UPS greatest revenue stream I domestic deliveries.



Strengthen relationships with traders whose shipments can facilitate premium delivery pricing.

Year Three

Creating fully functioning outputs



Receiving Turnaround,



Six Sigma Quality Checks,



Put-Away Time,



Input-Output Warehouse Rack Time,



Cycle Counting,



Shipping Time,



Re-Slotting Times,



Labor Times,



Human Resource Performance.



On Time Delivery To Customers,

UPS CASE ANALYSIS 55 

Following The Latest Transportation Legislation,



Treating Customers Well When Delivering Goods,



Route And Lane Optimization,



Proper Tracking Mechanisms,



GPS Coordinates,



Driver Management,



Driver Kpis,



Transportation Maintenance,



And Safety Management.

Specific Policies

Quality policy

Quality is customer satisfaction. UPS should aim at reaching the level of superior quality at low cost by achieving flawless service generation. UPS should adopt the Excellence Approach that equally and fairly meets the expectations of its customers, employees, suppliers, society and shareholders, which in essence is a continuous process of improvement, learning and innovation.

Occupational health & safety (OHS) and environmental policies

UPS should guarantee to: Improve its environmental and OHS performance in accordance with its targets and aims,


- Minimise environmental pollution by investing in environmentally friendly and OHS standards compliant technologies in all operations, - Reduce potential of occupational accidents and vocational illnesses by creating a healthier and safer working environment, - Make occupational health & safety and environmental sensitivity a way of life, - Comply with current legal and various other responsibilities regarding the environment and OHS activities, by means of regularly reviewing environmental and OHS hazards involving the logistics services sector.

Customer Feedback Policy

UPS should establish effective communication channels in order to understand and quickly respond to its customers’ requirements. It should undertake to respond and conclude all positive or negative notifications received by it in accordance with the laws, international transportation rules and the corporate procedures and to implement and continuously improve the customers’ complaints handling process together with its personnel aware of customer oriented approach.

Information Security Management System Policy

UPS should guarantee to ;

-

provide a secure access to it’s and stakeholders’ information assets,

-

Protect the usage, integrity and confidentiality of the information,


-

Assess and manage the risks which may comprise it’s and stakeholders’ information

assets, -

Protect the integrity and brand image of the company,

-

Perform necessary sanctions in case of violation of information security,

-

Provide the requirements arise from national, international or sector regulations, laws and

related legislations, agreement obligations, corporate responsibilities for internal and external stakeholders, -

Decrease the effects of threats on business/service continuity, providing the continuity

and sustainability of the business, -

Provide and improve the level of information security by control infrastructure.

Cooperation Policy

Foster sustainable partnerships based on mutually beneficial relations

Human Resources Policy

Ensure in employing the right people for the right job regardless of religion, language, race, gender or disability; increase employee satisfaction; strengthen corporate loyalty and develop efficiency; ensure participation in the decision making process by providing an environment for self-development.

Communication policy


Guarantee vertical, horizontal and traverse information sharing amongst all parties with the right tools and at the right time.

Financial Affairs Policy

Effective debt follow-up and collection from income generated from primary business activity, securing acquired liquidity, financial equity provision at minimum cost wherever possible and fulfil responsibilities on a timely basis. Keeping record of company activities in accordance with laws, general practice codes, international accounting standards and in compliance with unified accounting system, producing real and reliable financial statement correctly representing operation results.

Purchase Policy

Acquiring the right product and service at the right time, at the right amount from the right place at the right price.

Information Policy

-Rendering electronic documentation infrastructure wherever and whenever possible, -Simplifying information access process and ensuring information safety.


Technology Policy

Keeping operational efficiency at highest level by using latest technology.

Active Management Policy

Ensuring that buildings, equipment and material provide top quality service at low costs within product optimum lifespan.

Sustainability Policy

UPS should aim to perform its economic, social and environmental responsibilities within the frame of Customer Oriented Approach, Employee Satisfaction, Reliability, Develop Cooperation, Learning and Development, Taking Responsibility and Team Spirit values, in order to provide a sustainable future by considering the needs and expectations of stakeholders.

Corporate Social Responsibility Policy

Including all its employees, recognizing CSR as a vital part of corporate activity and being therefore committed to a course of social responsibility in accordance with this CSR policy for the sustainable development of society and business.


Contribution to the building of a prosperous and vibrant society by providing high-quality logistics services through business activities based on its excellent know-how and technology.

Disclosing information openly and transparently in order to maintain and develop a relationship of trust with its various stakeholders, and acting responsibly towards them through various means of communication. Undertaking its business based on the principles of fairness and sincerity, acting with the utmost respect for human rights and pursuing a high sense of corporate ethics in the global business market which encompasses diverse cultures, morals, ethics, and legal systems.

Striving to minimize environmental effects and utilizing resources towards the development of a sustainable society that is in harmony with the environment.

Promoting social contribution activities as a good corporate citizen in order to realize a better society.

Making every effort to create a pleasant and motivating working environment for all its employees and to fully support those employees who desire self-fulfillment and selfdevelopment through their work.

Making every effort to promote fair and sound business practices among its business partners by fostering a common awareness of social responsibility and common awareness of social responsibility.


Recommendation of Specific Strategies and Long-term Objectives

Recommendations 1. UPS has been experiencing increasing fuel costs lately, as a result of energy prices that are escalating around the world. As a logistics provider, fuel costs account for a significant part of operating costs at UPS. Thus, an increase in fuel costs jeopardizes directly the organization’s profitability. The company needs to invest in alternatives to gasoline. One way to achieve this goal is to acquire more vehicles powered by alternative fuels or hybrid technology. The UPS alternative fuel fleet currently includes 2700 trucks powered by compressed natural gas, liquefied natural gas, propane and electricity (Paul Lukas. 2012). 2. The company should increase the level of training its loaders on the company’s methods of operations. The training of the loaders is an effective way of improving the production levels. Since, the loaders are able to meet their daily-expected production levels after gaining adequate knowledge on the company’s preloading and packaging services. ($2M)


3. UPS needs to incorporate technology-enabled operations in preloading and packaging operations. Technology enabled services are usually user friendly and improves the efficiency of the company operations. Thus, the supporting UPS services will improve the operational efficiencies in the company. UPS is also able to leverage on the leading edge technology to improve logistics management and visibility for the customers. The company should implement the action of incorporating technology-enabled operations within the next 3months. The integration of the technology-enabled services would be a key strategy for the success for increasing production levels in the company. 4. Develop new labeling system for all packages carried by UPS. Reduce amount of missing or lost packages by implementing a standardized labeling system for all packages. Implement laser printing to ensure all labels are legible and clearly visible. Use RFID technology to accurately track packages from their point of origin to their final destination. Provide customers with up-to-date information about their items. 5. Automate the sorting processes. Implement automated sorting process to reduce manual labour and in turn prevent broken or damaged packages and reduce delivery time. This will eliminate human error in the sorting process and ensure that all packages are sorted into the proper warehouses or shipping vehicles and are shipped as quickly as possible. 6. Improve forecasting time-in-transit to prevent delays in aircraft departure. Implement GPS system in all UPS vehicles to record transit time data. Analyze data to find most efficient and consistent routes in


order to ensure accurate measurement of time-in-transit and thus prevent delays in aircraft departure. Improved time-in-transit measurements will result in quicker delivery and more affordable shipping costs for consumers.

Long-term Strategies 1.

Strategically locate UPS distribution centers in major cities throughout the globe. Adding additional distribution hubs in highly populated regions will result in reduced transit time and reduced transportation costs. The decrease in transit time and transportation costs will lead to higher profit margins and customer satisfaction

2.

Due to the continual growth of e-commerce and online purchasing habits of customers, UPS should focus on implementing strategic measures to account for future demand and a rise in online shopping over the past five years. This approach will aid them in keeping up with the growing e-commerce industry, in which shipping companies will need to account for a greater number of deliveries between retailers, manufacturers, and consumers occurring online. Since web-based, business-to-home deliveries are UPS’ specialty in the current market, they must respond to rising costs by starting to price deliveries based on the size of ground shipments rather than solely on weight alone, resulting in a higher profit margin for themselves. As more and more


customers adapt to the online world of e-commerce, UPS’ primary goal should be to bypass the low costs of their competitors and implement next day delivery into their business model for this growing industry 3.

Due to the emerging popularity of “green” initiatives, United Parcel Service should focus on increasing the sustainability of their business model through new packaging options and ground transportation methods. This approach will greatly improve the company’s image and reputation while decreasing long-run operating costs. UPS has already made indirect efforts towards sustainability via their Forestry Initiative, but a more direct approach with greater visibility will likely prove much more effective.

Comparison of Recommendations to the Actual Strategy This recommendation focuses on improving the overall experience of the customer. UPS will improve their reliability and delivery time, ensure that shipping costs are affordable, and provide industry-leading customer service. The company will allocate funds to accelerate the research and strategic placement of distribution centers. In addition, UPS will invest in technological research regarding GPS, automated sorting, and labelling systems. The resultant findings will then need to be analyzed in order to determine the most cost efficient way to purchase and implement new systems. These recommendations are similar in nature to UPS’ growth strategy which includes:  Deploying technology-enabled operations  Providing unique and industry-specific customer solutions


 Expanding their global network  Serving the needs of end consumers around the world

Advantage of Alternative Strategies  Improving efficiency and technological innovation to minimize delays and unnecessary costs  Lower operating expenses  Increased efficiency  Focusing on sustainability will increase job satisfaction and create a positive company culture

Disadvantages of Alternative Strategies  Huge investment into technological research and spending  The introduction of a new e-commerce division may cause traditional employees to feel threatened

Implementation This recommendation requires UPS to increase spending on research and analysis in the field of new technologies. At the completion of said research and analysis, UPS will need to allocate funds for the purchase of technologies as well as land and building expenses for new locations. In addition to these expenditures, employees will need to be trained to work the new technologies that UPS implements. Because of the large investment, Research and


Development, Engineering, and Finance teams will be heavily involved in the decision making process.

Estimated Cost of Implementing the Strategies


Value of Implementation

Through implementing these changes in their business model, UPS can expect to increase global market share and customer satisfaction while capitalizing on their core competencies of reliable and timely delivery, affordable shipping costs, and customer service. Since UPS reported total annual net income of $3.032 billion in 2014. We can expect their profit margins to continually increase as we implement these changes into their operations strategy.

ROI: Value/Cost, where $3,032,000,000/19,305,000 = 157.06 Return on Investment

Enacting these changes to UPS’s operations department results in an ROI of 157.06 times the investment, which leads us to believe that the implementation of these changes is well worth the investment. We can assume that these measures of operations efficiency will satisfy the current and future customer base that UPS currently caters to.


Deployment Framework for the Recommended Alternative

Time Frame Action Beg (Q/Yr)

End (Q/Yr)

Person Responsible

Cost

Strategically Locate Distribution Centers

9

1

Research distribution of demand in U.S.

Q1/2016

Q2/2016

Research Department

$50,000

2

Determine top 3 optimal locations and operational needs for each

Q2/2016

Q2/2016

Research Department

$50,000

3

Research real estate in those 3 locations

Q3/2016

Q4/2016

Research Department

$100,000

4

Purchase buildings that fulfill operational needs

Q4/2016

Q4/2016

Purchases Department

$1,750,000

5

Hire contractor to make additional changes to structure

Q1/2017

Q4/2017

Human Resources Department

$100,000

6

Interviews and hiring of managers (one for each location)

Q4/2017

Q4/2017

HR Department

$175,000

7

Interviews, hiring, and training of new employees

Q4/2017

Q1/2018

HR Department

$1,000,000

8

Interior design and decoration

Q1/2018

Q2/2018

Marketing Department

$75,000

Update transportation routes to include new

Q2/2018

Q3/2018

Operations Department

$80,000


locations 10

Analyze and monitor changes in transit time and delays

Q2/2018

Ongoing


----

Improve forecasting of time-in-transit 1

Research GPS technologies and determine the optimal device for UPS vehicles

Q1/2016

Q2/2016

Research Department

$90,000

2

Purchase devices for one distribution center

Q2/2016

Q3/2016


$250,000

3

Install devices in vehicles

Q3/2016

Q3/2016


$100,000

4

Train employees to use the devices accurately

Q3/2016

Q4/2016


$150,000

5

Appoint a team to monitor the route data collected and instruct drivers based on the most efficient routes

Q4/2016

Q2/2017


$300,000

6

Analyze and monitor the effect of the GPS devices and resultant route data on delays and time-in-transit

Q2/2017

Q3/2017

Analysis Team

$300,000

7

If results are positive, implement the devices at all other locations

Q4/2017

Q1/2018


$4,000,000


Automate Sorting Processes 1

Research automated sorting technologies to determine the most suited system

Q1/2016

Q2/2016

Research Department

$100,000

2

Purchase automation system for one location

Q2/2016

Q3/2016


$500,000

3

Install the system

Q3/2016

Q4/2016


$15,000

4

Monitor the new system to determine efficiency and effectiveness

Q1/2017

Q3/2017


$125,000

5

If the system is effective, relocate or let go newly nonessential employees

Q4/2017

Q4/2017


$50,000

6

Purchase systems and install them at other locations

Q1/2018

Q3/2018

Purchases and Operations departments

$5,000,000

7

Continue to monitor the systems to maintain optimal efficiency

Q3/2018

Ongoing


Develop a New Labeling System

---


1

Research innovative labeling systems

Q1/2016

Q2/2016

Research Department

$80,000

2

Purchase new labeling system for one location

Q2/2016

Q3/2016


$700,000

3

Implement the system

Q3/2016

Q4/2016


$15,000

4

Monitor the new system and analyze any changes in the amount of lost or missing packages

Q1/2017

Q3/2017


$150,000

5

If the system is effective, purchase more systems to be used at other locations

Q4/2017

Q4/2017


$4,000,000

6

Continue to monitor the systems to maintain effectiveness

Q3/2017

Ongoing


---


References Bronfenbrenner, K., (2000). Worker Turnover and Part-Time Employment at UPS. David, Fred. Strategic Management:Concepts and Cases, Global Edition, 15th Edition. Pearson (Intl), 02/2015. Hair, J., Bush, R., B., Ortinau, D., (2014). Retrieved from United Parcel Service: Will Big Brown Remain The Dominant Package Delivery Service?. Retrieved from: http://highered.mheducation.com/sites/0072467576/student_view0/chapter2/case_studies Morlok, E K., Nitzberg, B F., Balasubramaniam, K., Sand, M L. (2000). The Parcel Service Industry In The U.S.: Its Size And Role In Commerce. Retrieved from: https://trid.trb.org/view.aspx?id=673517 Paul Lukas (April 1, 2012). "UPS United Parcel Service James Casey transformed a tiny messenger service into the world's largest shipper by getting all wrapped up in the details of package delivery". Schmidt , A., (2015). How Has E-Commerce Changed The Courier Services Industry?. Retrieved from: http://marketrealist.com/2015/07/e-commerce-changed-courier-services-industry/

United Parcel Service of America, Inc. Retrieved from: www.ups.com



Appendices

Figure 4: UPS Board of Directors


Figure 5: UPS Senior Operations Management

Figure 6: UPS Management Committe

UPS Group Case Analysis- Group 2.pdf

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